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2013 (2) TMI 349 - ITAT MUMBAIDeduction allowable u/s 10B - assessee is engaged in the activity of trading as well as manufacturing of export of dehydrated onions granted approval of 100% EOU by the Development Commissioner, Kandla Free Trade Zone - Held that:- As in the assessment year under consideration purchase and sale of dehydrated onions was of Rs.11,19,19,308/-. Out of the said total purchases of dehydrated onions of Rs.11,19,19,308/-, the assessee purchased from its group concern dehydrated onions of Rs.10,22,63,149/-. As observed during the assessment proceedings, the AO asked the assessee to furnish explanation that the material being purchased from its group concerns was at market rates but the assessee could not furnish any proof regarding the comparable market rates. There is also no dispute to the fact that the trading activity constituted 58.20% of total sales. The assessee worked out from the said trading activity negative profit (Rs.59,97,840/-). The assessee has shown the net profit from both the activities i.e. trading and manufacturing of Rs.1,46,32,804/-. The AO has stated that if the negative profit as calculated by the assessee on exports of onions which is a trading activity, the net profit on the sale of Rs.9,96,48,019/- that is from manufacturing activity actually performed by the assessee comes to Rs.2,06,30,644/- (net profit of Rs.1,46,42,804 + negative profit of Rs.59,97,840). Thus agreeing with the observation of the AO that the said calculation as given by the assessee has no merit considering that the net profit as per tax audit report for the entire business activity is 6.14% and on the other hand, the profit from actual manufacturing activity will be 20.70%. The assessee has not disputed the fact that the assessee is not maintaining separate books of account and has allocated some of the expenses to the trading activity which the CIT(Appeals) has held that the same should not be allocated to trading activity and be considered for manufacturing activity. Therefore, finding substance in the contention of the DR that when some of the expenses which should not have been allocated to trading and are allocated to manufacturing activity, the profit from manufacturing activity will reduce. There are also certain common expenses like establishment etc. which have not been considered by the CIT(Appeals) for allocation to the manufacturing activity. Considering the facts of the case, while computing profits & gains of eligible business, all the direct as well as indirect expenses have to be considered for computation of profits & gains of eligible activity to claim deduction u/s 10B. If excessive expenditure is considered in respect of activity which is not eligible for deduction u/s 10B, it will be unfair as profits and gains of an activity which is not eligible for deduction will be understated and on the other hand, the profits and gains of eligible activity will be inflated to get more deduction u/s 10B. Thus confirm the action of the AO in working out the deduction allowable to the assessee u/s 10B by reversing the order of CIT(Appeals) - in favour of revenue.
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